An ongoing review of politics and culture

I have been accused of being too cynical about the American legislative process because I forecast in a prior post that lots of side deals would get cut to allow a carbon tax to get enough votes to become a law.

Anyone taken a look at how the current Lieberman-Warner cap-and-trade bill (a.k.a, the “opaque carbon tax”) has been evolving as we approach a vote?

Here are some of the features of the bill: Allocation to farmers and foresters via USDA based on amount of GHG emissions reduced or sequestered; Transition assistance to workers, using auction proceeds directed via the Climate Change Worker’s Assistance Fund; Transition assistance to carbon intensive manufacturers, refiners of petroleum and natural gas providers; Federal assistance to low-income consumers, via auction proceeds directed by the Climate Change Consumer Assistance Fund; Allocation to electricity and natural gas consumers via local distribution companies based on historic sales adjusted upwards for efficiency; Assisting state economies that rely heavily on manufacturing and coal, based on equally-weighted metrics of emissions that resulted from coal production from 1988 through 1992 and number of manufacturing jobs in the same period; Assisting state and local partnerships for mass transit via auction proceeds distributed by the Transportation Sector Emission Reduction Fund; Energy efficiency and conservation block grant program via auction proceeds; Special allocations to states based on historic state investments in GHG reductions and increasing energy efficiency; Special allocations to states and tribes based on several climate change vulnerability indicators; Special auction with proceeds directed to states and tribes via State Wildlife Adaptation Fund; Special allocation to private sector entities through the Early Action program for emissions reductions achieved since 1994; Allocation to owners of high efficiency buildings, retailers and distributors (based on increase in sales), and owners, operators and developers of renewable energy generation facilities (based on several metrics) via the Climate Change Technology Board; Auction proceeds directed to generation facilities and suppliers of technology components via the Low and Zero Carbon Electricity Technology Fund (as administered by the Climate Change Technology Board); Special allocation for entities that purchase medium and heavy duty hybrid vehicles; Special auction with proceeds directed to vehicle manufacturers via the Advanced Technology Vehicles Manufacturing Incentive Program; Allocation to US producers of cellulosic biofuels; Special auction with proceeds directed to federal Firefighting, Wildlife Adaption and similar Funds; Special allocation to foreign countries for the reduction of deforestation; Special auction with proceeds directed to foreign countries and entities via the Clean Development Technology Board (as administered by the International Clean Development Technology Board); Auction proceeds directed to administrative funding via the Climate Security Act Administrative Fund.

Calling some of these carve-outs “transition” assistance is pretty funny, since they extend out to 2030 for the oil, natural gas, power generating and manufacturing companies (six presidential elections and more than three senate terms from now). Do you think that when 2030 rolls around their reaction is going to be “a deal’s a deal”?

Of course, this is the rent-seeking we have now as the regulatory process is about to be kicked off. For this program to work, it has to remain in force for many decades. If this happens, entire lobbying firms will be built up to seek exemptions, allowances and so on. Many nice homes will be built in McLean with the proceeds, and many members of congress will have re-election campaigns financed by the contributions this bill will generate. It will create another income tax code.

Leave a Reply

Jim,

You are performing a valuable service by showing people the making of the sausage. But truth be told I don’t see very much to object to in your giant, perhaps purposely non-linebreak-separated list. (whoops, I think this may be an artifact of the crappy AmericanScene html renderer) Of course there are many details which I haven’t looked at.

Some of these seem like necessary or very helpful components:
# Assistance to “workers” and “low-income” consumers to offset regressivity
# Allocation to farmers based on non-emitting uses of GHG (don’t know much about this, but if the description is accurate it should be kosher)
# Exemption for already-equivalently-taxed fuel coming from other countries

Some things are not necessary but not bad:
# Allocations to states and companies that have made previous strides in increasing energy efficiency (retroactively applied bonus)
# Money for energy efficiency programs
# Assistance for states most vulnerable to climate change (theoretically this is the movement from Kaldor-Hicks improvement to Pareto improvement)

Some things are unclear:
# Assistance for providers of low-emission energy technology
# Assistance to state partnerships for mass transit
# Assistance to countries that reduce deforestation
# Money for energy consumers based on historic energy usage of the local distributor

The giveaways may not go to the right folks all the time, but polluters look very unlikely to come out ahead after this policy. In other words, the policy appears to work in the right direction (tax pollution), even after the mitigating conditions/exemptions are taken into account.

It is fine to be pessimistic about a bill but I hope you will understand that this laundry list of conditions does not substitute for a quantitative analysis of deadweight loss and rent-seeking effects. Absent such an analysis, I don’t think the length of the list (given that much of it sounds reasonable) is sufficient to establish a presumption that the bill is net welfare-reducing.

This is not meant to be a comprehensive analysis of the bill. It is simply meant as evidence for a narrow point made in a prior post: a carbon tax (by whatever name) will not be the pure vehicle used for modeling purposes by environmental – economics modelers when they conduct cost-benefit analysis. That is, at this evel of abstraction and to the the extent these modelers have done their job, the economic costs imposed by these side-deals are incremental to all of the other modeled effects.

This is a complicated series of posts on a really complicated issue. Can I ask a few (maybe stupid) questions?

Are you saying this won’t work at all, or it’s really hard to tell if it will be “worth it?”

Is it possible to estimate how much this tax would reduce carbon emissions? If so, do you have a ball park figure?

You are talking about costs, vrs. benefits. I assume the costs are to productivity? Is it possible to estimate (or better describe) those costs? Are these opportunity costs: if we use the the fruits of this productivity in this way to reduce carbon, we can’t use it this other, better, way to reduce carbon? Or are they just generic costs. If we use the fruits of this productivity to reduce carbon, we can’t use them to buy flat screen tvs?

What if the money collected from this tax were directed to technological research?

Do you think the government has any tools at all to reduce global warming (besides promoting research, or do you see that as market promoted research?)?